The Evaluation of the Audit Evidence - dummies

The Evaluation of the Audit Evidence

By Kenneth Boyd, Lita Epstein, Mark P. Holtzman, Frimette Kass-Shraibman, Maire Loughran, Vijay S. Sampath, John A. Tracy, Tage C. Tracy, Jill Gilbert Welytok

The last concept of audit evidence is making sense of the evidence the client has given you and seeing whether you have enough competent evidence to support management assertions. This step of the audit involves using your professional judgment to make sure the evidence you’ve gathered is appropriate (relevant and reliable) and sufficient.

Figuring out who should supply information or answer questions, what to collect, where to collect evidence from, when you can reach a conclusion, and how to evaluate is a skill that develops over time. In the beginning, this may be the hardest part of your job as auditor. Rest assured that you’ll have help along the way from your senior associate.

While you’re evaluating the evidence, you use two methods to help you determine whether it’s sufficient and appropriate: being thorough and being unbiased. Two other factors are key when evaluating audit evidence: exercising skepticism and asking for ideas from other audit team members. Together, these factors constitute applying professional judgment to any audit situation.

Being thorough

Thoroughness is when you make a decision and follow it through to its logical conclusion. For example, you’re in charge of testing the account balance of repairs and maintenance. During the year, 10,000 transactions affect that account, and you select 100 transactions to test. You ask the client to provide the invoices relating to the 100 transactions. You’re going to look at the management assertions of occurrence, completeness, accuracy, cutoff, and classification.

Being thorough means you check out each of the six management assertions for each of the 100 transactions. You can’t decide not to test each of the six assertions just because a transaction is too difficult to check for a certain assertion or because you consider the amount of the transaction too small to worry about.

Similarly, after looking at 75 or so of the transactions, you can’t decide not to check the remaining 25 just because the first 75 reconciled to management assertions without discrepancy. You make a plan, and you follow through 100 percent.

Being unbiased

While evaluating the evidence, you have to remain completely unbiased. Continuing the previous example, the fact that because 75 of the records are 100-percent correct shouldn’t affect your determination to look at the remaining records objectively.

This unbiased attitude also prevents you from acting unprofessionally because of personal factors, such as liking the client. You can’t cut the client some slack because its employees are pleasant to work with and responsive to your document and records requests.

You also can’t infer anything based on other parts of the audit you’ve worked on. Just because the client has displayed truthfulness in one area doesn’t mean you can assume truthfulness in all other areas.